Dave's Donuts is a local donut shop. Dave is fortunate that his business is experiencing sales growth given an increase in p opularity for coffee and for pastries like donuts. However, this means that Dave's Donuts requires more labour be able to service the additional customers the business has. As the owner/manager of his operation, Dave needs to decide whether he needs to hire more workers to work at t he donut shop or whether to have his existing workforce work more hours on average. Suppose the marginal expense of hiring an additional worker is $150 and the marginal expense of hiring current workers for an extra hour is $10. The added output associated with hiring an additional worker, holding both capital and average hours per worker constant, is 120. The added output generated by increasing average hours per worker, holding capital and the number of employees constant, is 7. Use this information to answer the question below. a) Should Dave's Donuts hire additional workers or have his existing workforce work more hours (i.e. increase the average hours per worker)? Why? Hint: use the Optimal Employment-Hours Mix Rule to solve this question.

Dave's Donuts is a local donut shop. Dave is fortunate that his business is experiencing sales growth given an increase in p opularity for coffee and for pastries like donuts. However, this means that Dave's Donuts requires more labour be able to service the additional customers the business has. As the owner/manager of his operation, Dave needs to decide whether he needs to hire more workers to work at t he donut shop or whether to have his existing workforce work more hours on average. Suppose the marginal expense of hiring an additional worker is $150 and the marginal expense of hiring current workers for an extra hour is $10. The added output associated with hiring an additional worker, holding both capital and average hours per worker constant, is 120. The added output generated by increasing average hours per worker, holding capital and the number of employees constant, is 7. Use this information to answer the question below. a) Should Dave's Donuts hire additional workers or have his existing workforce work more hours (i.e. increase the average hours per worker)? Why? Hint: use the Optimal Employment-Hours Mix Rule to solve this question.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 15P

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